Heath Insurance Switching

Switching Health Insurance Funds

From time to time, health fund members may wish to vary their cover and/or change their health fund to take account of their changing needs and/or more competitive options available elsewhere.

To help protect fund members, Federal legislation now requires health funds to allow “portability” for hospital cover when members switch between health funds. Portability means that members can't be required to serve their waiting periods again when they switch funds on an equivalent level of cover.

To take advantage of portability, your “old” health fund needs to provide you or your "new" health fund with a Transfer Certificate. If you receive the Transfer Certificate from your "old" fund, you should send it to your "new" fund immediately, The Transfer Certificate confirms the waiting periods that have already been served and the level of cover previously held. The Certificate also confirms the members Lifetime Health Cover status and who was covered by the previous membership.

Although not legislated, most health funds also allow a level of portability for extras (dental/ancillary) cover.

To gain the protection of portability, members should ensure that they are paid up to date before transferring.

The overriding principle which underpins the portability provisions or 'right to change' is that any member transferring from one product to another, either within a fund or between funds, will never be placed in a more adverse position than a new member entering that product for the first time.

It would be unfair to the wider membership of a health fund if a transferring member could immediately access the higher benefits of a new product. Federal legislation therefore allows health funds to apply waiting periods in a range of circumstances.

The 'Legislated Waiting Periods' for hospital cover provide for a 12 month wait for pre-existing ailments and obstetric conditions and a two month waiting period for all other conditions for new members and those upgrading their hospital cover.

Some members may choose products that exclude certain procedures to reduce the costs of premiums or for lifestyle reasons.

Where the previous fund product has an exclusion attached, and the member is seeking to transfer to a product without an exclusion, the fund has the right to apply the legislated waiting periods before the member is entitled to the higher benefits under the new fund product.

The examples below show the effect of a transfer away from a product with exclusions (Mr Blue) and a transfer into a product with exclusions (Mrs Green).

Mr Blue had 12 months membership on a product that excluded benefits for cardiac conditions when he transferred to a product without exclusions.

Mr Blue suffered a heart attack three months after transferring to his non exclusionary product.

If Mr Blue had previously had signs and symptoms which were later shown to be associated with his heart attack, it would be deemed pre existing and he would not be entitled to any benefits for this problem for a further nine months.

If in similar circumstances, Mr Blue suffered a heart attack where he had no previous signs or symptoms, and therefore the pre existing ailment rule did not apply, he would be entitled to the benefits of his new cover, as he had already served the general two month waiting period for higher benefits.

Mrs Green was 46 years of age and her family had all left home.

She previously had a full cover hospital product without any exclusions but decided, for a lesser premium, to transfer to a product which excluded obstetrics, hip replacement and heart surgery.

Six weeks after taking out the cover, Mrs Green suffered a heart attack and was taken to the local private hospital for heart surgery.

Even though Mrs Green had previously held full cover for heart surgery for several years, the effect of her new exclusion product came into force as soon as she transferred and she was not covered for the heart surgery and hospitalisation.

Some members may choose, for lifestyle reasons or to reduce the cost of premiums, a product where the benefits on some or all hospital procedures are limited to a level significantly below the hospital charge, or to the cost of admission as a private patient in a public hospital.

Where the previous fund product has a benefit limitation, and the member is seeking to transfer to a product without a benefit limitation, the fund has the right to apply the legislated waiting periods before the member is entitled to the higher benefits under the new fund product.

The examples below show the effect of a transfer away from a product with benefit limitations (Mr Blue) and a transfer into a product with benefit limitations (Mrs Green).

Mr Blue had 12 months membership on a product that had a benefit limitation for obstetrics, hip replacement and cardiac procedures and transferred to a product that had no limitations.

Mr Blue suffered a heart attack three months after transferring from his benefit limited product.

If Mr Blue had previously had signs and symptoms which were later shown to be associated with his heart attack, it would be deemed pre existing and he would therefore be entitled to the restricted benefits under his previous cover for this problem for a further nine months.

If in similar circumstances, Mr Blue suffered a heart attack where he had no previous signs or symptoms, and the pre existing ailment rule did not apply, he would be entitled to the benefits of his new cover, as he had already served the two month general waiting period for higher benefits.

Mrs Green was 46 years of age and her family had all left home.

She previously had a full cover hospital product without any limitations but decided, for a lesser contribution rate, to transfer to a product which paid lower benefits for obstetrics, hip replacement and heart surgery.

Six weeks after taking out the cover, Mrs Green suffered a heart attack and was taken to the local private hospital for heart surgery.

Even though Mrs Green had previously held full cover for heart surgery for several years, the effect of her benefit limitation product came into force as soon as she transferred. The benefit she received was therefore less than half of the accommodation cost of her stay in hospital and no benefits for the extensive theatre costs.

Some products are available where the member agrees to pay an excess up front when they go to hospital. The excess may be a fixed amount each time a member goes to hospital in a given period, or a set amount payable per year, or a combination of both.

Where the previous fund product has an excess attached, and the member is seeking to transfer to a product without an excess, the fund has the right to apply the legislated waiting periods before the member is entitled to the higher benefits under the new fund product.

The examples below show the effect of a transfer away from a product with an excess (Mr Blue) and a transfer into a product with an excess (Mrs Green).

Mr Blue had 12 months membership on a product that had an excess of $200 for each hospital admission and decided that he should transfer to a product without an excess.

Mr Blue suffered a heart attack three months after transferring from his old excess product.

If Mr Blue had previously had signs and symptoms that were later shown to be associated with his current heart disease, the heart attack would be deemed pre- existing and he would therefore be required to pay the excess for this hospitalisation.

If in similar circumstances, Mr Blue suffered a heart attack where he had no previous signs or symptoms, and therefore the pre existing ailment rule did not apply, he would be entitled to the benefits of his new cover and would not have to pay his excess, as he had already served the two month general waiting period for higher benefits.

Mrs Greenwas 46 years of age and her family had all left home.

She previously had a full cover hospital product without any excess but decided, for a lesser premium, to transfer to a product which had a $200 excess for each hospital admission.

Six weeks after taking out the cover, Mrs Green suffered a heart attack and was taken to the local private hospital for heart surgery.

Even though Mrs Green had previously held full cover for heart surgery with no excess for several years, the effect of her new product came into force as soon as she transferred and she would therefore be required to pay the $200 for this hospitalisation.

There is no requirement for a health fund to offer the benefits of portability to their ancillary cover, although some funds may. If a fund does offer portability to its extras cover, they undertake to advise new members of any significant lessening of benefits they may incur. The underlying principle would then apply, that any transferring member will not be placed in a more adverse position than a new member to that product.

Loyalty bonuses have been a component of extras tables for many years. Recent legislation has enabled funds to provide for loyalty bonuses within hospital arrangements. These bonuses can take many forms, from additional benefits for items after a set period of years through to the ability to roll over benefits not used in particular years. The bonuses can be quite significant, particularly in high cost ancillary areas such as orthodontic or major dental costs. They are common throughout most funds in some form and are given as a reward to longer term members of the particular fund.

Some members have a view that their membership of private health insurance is continuous even though they may have held their cover with different funds over the period. This is generally not the case with loyalty bonuses.

Members need to be aware that loyalty bonuses are exclusively applied to membership of a particular fund, and sometimes within specific products of a fund; they are not usually transferable to other funds or products.

Mrs Aqua had been with her health fund for some 5 years.

Her orthodontic limit was $500 but this increased by $100 after each full calendar year's membership up to a maximum of $800. Mrs Aqua had reached the $800 maximum.

She then transferred to a health fund which likewise has a benefit for orthodontics of $500 rising annually by $100 to $800.

Unless specifically advised otherwise, Mrs Aqua should assume that her benefit will drop to $500 initially and she will need to re qualify by waiting three calendar years for the full $800 benefit. Her years with the previous fund do not increase her benefit with the new fund.

Members who transfer to another fund to provide better hospital cover will usually find that if they also transfer their ancillary cover, they may lose the loyalty bonus years built up with their old fund and need to recommence their years of membership from zero with the new fund. Members should check this aspect carefully prior to changing cover.

The Lifetime Health Cover provisions and any aged based penalties only apply to hospital cover. Therefore if a member has a product which includes extras cover, or a separate extras product and they choose at any time to discontinue the extras component of that policy, they will not be penalised with respect to their Lifetime Health Cover contribution age category.

Members are able to transfer between hospital products without affecting their Lifetime Health Cover age category, provided contributions are up to date when they transfer.

In the event that they elect to temporarily discontinue their hospital cover and sometime later, transfer to another fund or product, they should ask the fund about what effect this may have on their Lifetime Health Cover age category.

Best practice within the private health insurance industry is for the health fund to provide members with specific written details of the changes they arrange and their effect on the membership.